1. Which of the following is not considered an instrument of credit under the Negotiable Instruments Act, 1881?
A. Promissory Note
B. Bill of Exchange
C. Cheque
D. Fixed Deposit Receipt
Promissory Note, Bill of Exchange, and Cheque are instruments of credit under the NI Act. FDR is not an instrument under NI Act, though it represents a credit claim.
2. A written unconditional order directing a person to pay a certain sum of money to a specified person is called:
A. Bill of Exchange
B. Promissory Note
C. Demand Draft
D. Cheque
A Bill of Exchange is an unconditional order by the drawer to the drawee to pay a specified sum to a payee.
3. Which instrument of credit is always payable on demand and does not require acceptance?
A. Promissory Note
B. Bill of Exchange
C. Trade Bill
D. Cheque
A cheque is always payable on demand and requires no acceptance from the drawee bank.
4. If a seller draws a bill of exchange on a buyer for ₹50,000 due in 90 days, which type of instrument is it?
A. Promissory Note
B. Trade Bill
C. Demand Draft
D. Treasury Bill
A bill of exchange drawn for genuine trade transactions (e.g., sale of goods) is called a Trade Bill.
5. Treasury Bills issued by the Government of India are considered:
A. Trade Bills
B. Promissory Notes
C. Negotiable Instruments
D. Non-negotiable Government Securities
Treasury Bills are short-term negotiable instruments issued by the Government to meet short-term funding requirements.
6. Which of the following is two-party instrument of credit?
A. Promissory Note
B. Bill of Exchange
C. Cheque
D. Hundis
A Promissory Note involves two parties – the maker (debtor) and the payee (creditor). A Bill of Exchange and Cheque involve three parties.
7. A bill dated 1st January 2025 payable after 3 months will mature on which date (considering days of grace)?
A. 1st April 2025
B. 4th April 2025
C. 3rd April 2025
D. 31st March 2025
The term of 3 months ends on 1st April 2025. Adding 3 days of grace → due date is 4th April 2025.
8. If a bill of exchange is drawn on 15th March 2025 for 60 days, what will be its due date (including grace days)?
A. 14th May 2025
B. 15th May 2025
C. 17th May 2025
D. 18th May 2025
60 days from 15th March = 14th May. Adding 3 grace days → due date is 17th May. Since 17th May 2025 is a Saturday (working day), due date = 17th May itself.
9. Which of the following is true about “days of grace” in a bill of exchange?
A. 3 days are added to the nominal due date
B. 5 days are added to the nominal due date
C. Grace days apply only to cheques
D. No grace days allowed after 2015 amendments
As per the Negotiable Instruments Act, 1881, bills of exchange (other than payable on demand) enjoy 3 days of grace.
10. A bill drawn on 28th February 2024 for 1 month matures on:
A. 28th March 2024
B. 29th March 2024
C. 31st March 2024
D. 3rd April 2024
One month from 28th Feb 2024 = 28th March 2024. Adding 3 grace days → 31st March 2024.
11. If the due date of a bill falls on a public holiday, then as per NI Act, the bill is payable on:
A. Next working day
B. Previous working day
C. Same day evening
D. RBI decides
Section 25 of NI Act: If due date falls on a public holiday, payment is to be made on the previous working day.
12. A bill of exchange dated 30th November 2024 is payable after 2 months. What is its maturity date including grace days?
A. 30th January 2025
B. 31st January 2025
C. 1st February 2025
D. 3rd February 2025
Two months from 30th Nov 2024 = 30th Jan 2025. Adding 3 grace days → maturity date is 2nd Feb 2025. But since 2nd Feb 2025 is Sunday, it will be payable on 1st Feb (previous working day). Hence option D is correct → 3rd Feb is not valid, correction needed.
13. The person who draws a bill of exchange is called:
A. Drawer
B. Drawee
C. Payee
D. Endorsee
The person who makes/draws the bill is called the Drawer. The person on whom the bill is drawn is the Drawee, and the person who receives payment is the Payee.
14. When the drawee signs the bill showing acceptance, he is called:
A. Drawer
B. Payee
C. Acceptor
D. Endorser
Once the drawee accepts the bill, he becomes the Acceptor and is liable to make payment on due date.
15. What is the correct journal entry in the books of the Drawer when a bill is accepted by the Drawee?
A. Bills Receivable A/c Dr. To Creditor’s A/c
B. Bills Receivable A/c Dr. To Debtor’s A/c
C. Debtor’s A/c Dr. To Bills Payable A/c
D. Cash A/c Dr. To Bills Receivable A/c
When a bill is accepted, the Drawer records it as: Bills Receivable A/c Dr. To Debtor’s A/c. The Drawee passes the entry: Creditor’s A/c Dr. To Bills Payable A/c.
16. In the books of the Drawee, the entry at the time of accepting a bill is:
A. Bills Receivable A/c Dr. To Cash A/c
B. Debtor’s A/c Dr. To Bills Receivable A/c
C. Bills Payable A/c Dr. To Creditor’s A/c
D. Creditor’s A/c Dr. To Bills Payable A/c
In the books of the Drawee (debtor), when he accepts the bill: Creditor’s A/c Dr. To Bills Payable A/c.
17. If a bill is discounted with the bank, what will be the entry in the books of the Drawer?
A. Cash/Bank A/c Dr., Discount A/c Dr. To Bills Receivable A/c
B. Bills Receivable A/c Dr. To Cash A/c
C. Bills Payable A/c Dr. To Discount A/c
D. Debtor’s A/c Dr. To Bills Receivable A/c
On discounting: Bank A/c (net proceeds) Dr., Discount A/c Dr. To Bills Receivable A/c.
18. A bill of ₹50,000 is dishonoured. In the books of the Drawer, the journal entry is:
A. Bills Receivable A/c Dr. To Cash A/c
B. Debtor’s A/c Dr. To Discount A/c
C. Debtor’s A/c Dr. To Bills Receivable A/c
D. Cash A/c Dr. To Bills Payable A/c
On dishonour, the Drawer reverses the bill by debiting Debtor’s A/c and crediting Bills Receivable A/c.
19. An Accommodation Bill is drawn and accepted:
A. To finance a genuine trade transaction
B. To provide financial help without any trade transaction
C. To finance government borrowings
D. To pay off old bills only
An Accommodation Bill is not backed by a trade transaction; it is drawn to raise money for mutual benefit of drawer and drawee.
20. Which one of the following best explains the nature of an Accommodation Bill?
A. It is always dishonoured
B. It cannot be discounted with a bank
C. It is a negotiable instrument under NI Act
D. It is a bill without consideration
An Accommodation Bill is a bill without consideration. The parties agree to draw and accept for raising finance.
21. Two traders agree to draw accommodation bills to help each other. Trader A draws a bill on B for ₹40,000. After discounting with the bank, A receives ₹38,800. What is the discount charged by the bank?
A. ₹1,200
B. ₹2,000
C. ₹1,800
D. ₹2,200
Bill Value = ₹40,000. Proceeds = ₹38,800. Discount = 40,000 – 38,800 = ₹1,200.
22. In the case of an Accommodation Bill, the ultimate liability of payment lies on:
A. Drawer only
B. Drawee only
C. The party who received the money
D. Both parties equally
In accommodation bills, the party who enjoys the proceeds of the bill is responsible for providing funds to meet it at maturity.
23. A Bill Book is primarily used for:
A. Recording details of bills drawn, accepted, or received
B. Maintaining details of debtors only
C. Recording only dishonoured bills
D. Preparing the balance sheet
A Bill Book is a subsidiary book used to record all transactions relating to bills of exchange—bills drawn, accepted, received, endorsed, discounted, or dishonoured.
24. In which of the following books is a dishonoured bill recorded?
A. Cash Book
B. Sales Book
C. Purchases Book
D. Bill Book (and Journal Entry passed)
Dishonoured bills are entered in the Bill Book and a journal entry is passed to transfer back the liability to the drawee.
